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Refinancing When an owner obtains a new first mortgage on his real estate, the
homeowner has undergone a home refinancing. Simply put, think of home
refinancing as trading in an old first mortgage for a new first mortgage.
To refinance a home, the homeowner must apply for a new mortgage. During the
application process, the subject home will undergo a new appraisal to
determine its value, and the homeowner's credit file will be reviewed. The
lender will also order a title report on the property to search for any other
liens that may appear. Assuming all these items meet with the lender's
approval, the loan will be approved.
Once approved, the homeowner will meet typically at the office of the lender
or title company to sign the new mortgage. The proceeds of the new loan will
be used to pay off the old first mortgage as well as any additional mortgages
and liens on the property. Accordingly, the only mortgage showing on the home
after the refinance will be the new loan itself.
Homeowners frequently seek to refinance their home when interest rates fall
below the rate they had on their mortgage when they first bought their home.
For instance, if a homeowner had a 30-year mortgage at 8% and a loan of
$100,000.00, it would be wise to seek a refinance if the interest rates fell
to 6%. The savings in such a situation would be $134.00 per month. Over the
life of the loan, the savings could reach a total of $48,240.00. If the loan
was for $200,000.00, the monthly savings would be $268.00, an almost
$100,000.00 savings over the life of the loan. Accordingly, when determining
if it is worthwhile to refinance a home, the homeowner should weigh the long
term savings against the costs involved in the refinance and the length of
time the homeowner intends to stay at the home to insure that the refinance
is worthwhile.
Costs typically involved in a refinance include: points, document preparation
fees, tax service fees, title expenses, appraisal fees, and other lender's
costs. Of these, the "points" are typically the most expensive. Using the
$100,000 loan example again, for a refinanced loan with one point (1%), the
homeowner would pay a fee of $1,000.00 to secure the loan. If two points (2%)
are being paid, then the homeowner would pay $2,000.
It is wise to consult an attorney or real estate agent when considering a
refinance as these professionals have many good insights to offer.
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